If you run your own company and travel for business, you might be tempted to mix work with pleasure. That’s fine as long as you follow tax rules. Your tax professional can advise you on what you can or cannot do.
TAX-SMART TRAVEL
Generally, businesses can deduct the costs of airfare, lodging, car rentals, and meals from taxable income when they are used for legitimate business purposes.
However, when you combine personal and business travel, it becomes more complicated. You can still deduct transportation costs for yourself, but not for any family members. Additionally, you may only deduct the reasonable cost of lodging, which would be single or double occupancy in this case. You can also deduct the cost of shipping materials needed for your business, dry cleaning, and tips. However, you cannot deduct any expenses related to family activities.
SEPARATE EXPENSES
It’s important to keep detailed records, including the days, locations, times, names of people you meet, and your business purpose. Remember that the IRS probably won’t allow deductions for a day when you have a 15-minute meeting and spend the rest of the day with your family at a theme park.
You need to allocate all of your expenses for tax purposes. For example, you can deduct the cost (including gas) of renting a car only on the days when you conduct business. So, if you spend $500 for a 10-day rental and work for five of those days, you can deduct half of that as a business expense.
Finally, you will need to recognize the personal expenses paid by the company as an owner’s draw and part of your income.